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Why Sally Beauty Holdings, Inc. Stock Fell Today

The cosmetics retailer slipped on slow retail sales growth in a key segment.

What: Shares of Sally Beauty Holdings, Inc. (NYSE:SBH) were getting left behind today after revenue fell short of expectations. The stock was down 9.7% as of 2:08 p.m. EDT.

Image source: Sally Beauty.

So what: The beauty products retailer matched estimates with a per-share profit of $0.47, which was up from $0.41 a year ago, while revenue increased 3.1% to $998.2 million, which was slightly short of the consensus at $1 billion.

CEO Chris Brickman sounded positive about the results, noting that gross margin expanded and per-share profits increased 14.6%. Same-store sales at its Beauty Systems Group were up 5.4%; however, the Sally North American business did not meet expectations. "Sally's retail traffic is clearly taking longer to return to historical levels than we anticipated," he added. Earnings in the Sally segment fell 2.3% to $104.8 million in the quarter.

Now what: While the performance of Sally Beauty Supply was disappointing, comparable sales were still positive at 1.3%, and the performance from Beauty Systems Group more than made up for it.

The company did not issue guidance, but Brickman said the company had noticed "a couple of tactical marketing changes in the quarter that negatively impacted traffic growth and we have moved quickly to address these issues." He was also optimistic that Sally Beauty Supply would return to steady, sequential sales improvement.

Even with sluggish performance in that segment, growth in Beauty Supply Group was more than enough to make up for it, and for a company with a modest valuation, 15% EPS growth is solid. I'd say today's sell-off looks overdone.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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